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An annual survey conducted by Shearman & Sterling tracking corporate governance practices among the nation’s top public companies has found that while the independence of most directors continues to exceed the standard set by industry regulations, those individuals serving on corporate boards are earning more. The law firm’s survey also showed that more firms are shunning controls to thwart hostile takeovers and instead are heeding the call from institutional investors who assert that companies generate higher shareholder value without the devices. The study, performed in house by the New York-based firm, serves as a way for Shearman to give its corporate clients information about the compliance practices among big companies, said co-managing partner John Madden. Such surveys also can function as effective marketing tools, as well, though Madden stressed the benefit to clients. “It provides an analysis of key governance issues,” he said. CONNECTING WITH CLIENTS Trends in Corporate Governance Practices of the 100 Largest U.S. Public Companies tracked securities filings among the nation’s biggest companies, as defined by Fortune. Shearman, with 1,053 attorneys, has conducted an annual survey of corporate compliance at the 100 biggest companies since the passage of the Sarbanes-Oxley Act of 2002. Shearman’s study is part of a trend among law firms to use surveys as a way to connect with clients and to create a marketing buzz, said Jay Jaffe, president of Jaffe Associates, a marketing consultancy. Fulbright & Jaworski conducts a survey of general counsel. Foley & Lardner also has looked at the effects of Sarbanes-Oxley, as has Atlanta’s Powell Goldstein. Jaffe said that as more firms do them, they become less effective. “They become diluted and just part of the noise in the marketplace,” he said. This year, Shearman’s survey showed that directors were earning more for their services as board members. Results for the three consecutive surveys indicated that 98 of the 100 companies paid their directors annual cash retainers. But this year, 11 of those companies paid their directors more than $80,000, compared with nine companies paying that amount in 2004 and three companies paying that amount in 2003. In addition, 29 of the 100 companies this year reported cash retainers of $40,000 or less, compared with 39 companies in 2004 and 55 in 2003. The survey further showed that the majority of the companies, all of which are listed either on the New York Stock Exchange or the Nasdaq, continued to exceed the minimum independent director requirements of those organizations. This year, 54 of the top 100 companies had stricter standards than required by the listing standards regarding the minimum number of independent directors. Last year, 46 companies had standards more stringent than required. This year’s survey also indicated that the number of companies with “poison pills” dropped to 27 out of 100 companies, compared with 33 in 2004. Poison pills, designed to block hostile takeovers, allow shareholders to acquire additional shares at below market price, which increases the number of shares outstanding and makes the takeover prohibitively expensive. In addition, Shearman’s survey this year showed that the number of companies with staggered terms among their directors dropped to 38 from 54 out of 100 last year. Having boards with staggered terms, also called classified boards, prevents a hostile bidder from taking control of the board in a single election. Public companies generally have shifted away from poison pills and staggered terms because of pressure from institutional investors, which generally believe the devices lower shareholder value, said Harvard Law School Professor John Coates.

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